Oil rises on possible US sanctions on Russia

Growing pressure from US President Donald Trump to end the war in Ukraine, in the form of a threat to impose new sanctions on Russia, is pushing up oil prices. Oil prices are further supported by the announced agreement between the US and the EU, under which the EU will purchase USD 750 billion worth of energy commodities over the next 3 years.  

Brent crude was trading above USD 72.5/bbl on Wednesday afternoon. The price rose above USD 70/bbl after US President Donald Trump at the start of the week shortened Russia's deadline to agree a ceasefire with Ukraine to 10-12 days, from the original 50-day deadline set in the first half of July.

In mid-month, Trump threatened to impose 100% secondary tariffs on Russian oil and gas if a ceasefire was not reached within the then-applicable 50-day deadline. This immediately raised concerns over disruptions to global supplies.

"Trump's shortening of the deadline for Russia has brought a degree of urgency to the energy market," said Tim Waterer, chief market analyst at KCM. "If the US does indeed move forward with tougher sanctions and secondary tariffs on Russia, we could see supply disruptions."

However, there is also scepticism that Trump will actually impose the 100% tariffs.

"It is no secret that Trump wants lower oil prices," ING analysts said. "For these reasons, we do not believe that the secondary tariffs will actually come into force – at least not at 100%."

Oil prices, and energy commodity prices more broadly, were further supported by the trade agreement reached between the US and the EU. Specifically, the part of the agreement concerning supplies of US energy commodities to the EU worth a total of USD 750 billion over the next 3 years. Although it is important to note that imports of the stated volume are, according to analysts, hardly achievable within 3 years.